Dawn J Bennett, host of the national radio program Financial Myth Busting, and CEO and Founder of Bennett Group Financial Services, shared her thoughts on the 2016 Presidential Election and the impact on financial markets in an October article titled, “Of Purse Strings and Presidents.”
As the presidential election approached, Bennett asked people who they were going to vote for on November 8. Many responded with a simple “no one,” despite America very much needing the active participation of the people in governing the nation.
Understanding the dissatisfaction of the candidates Americans were left to choose between, Bennett wrote, “…it’s as if we Americans are being held hostage to a poorly written TV show, watching the race for the highest office in our land become a race to the bottom.”
Bennett stressed that Election Day couldn’t come soon enough to end the international embarrassment that the election was. Merrill Lynch had said, “Despite the descent of politics, the subjects having little bearing on financial markets, its stench nonetheless permeates everything.” Bennett agrees.
Money is the driving force in the future of American politics, and for far too long have fundamentals been disregarded. Bennett wrote, “Fundamentals have too long been ignored: a poor and unstable economy; a lack of consumer liquidity; employment and income savaged by many elements, particularly poor-quality trade agreements, shifting wealth off shore. The financial system is no longer a free market system in anything but name, operating outside of reasonable norms and controls.”
Despite the election results, the U.S. financial markets and the U.S. dollar are likely to experience near-term turmoil. While many would assume it would trigger a flock to gold, Bennett believes the Federal Reserve is concealing the price so it appears that our economy, markets, and political system are stronger than they really are. This is something the Federal Reserve did back in September 2011, in which gold hit a peak and then dropped 400 to 500 points. This year, gold is up by roughly 17% year-to-date and silver is up 25%.
Bennett states that this is the key reason why so few investors actually expect a decline in U.S. stock markets. Investors are under the assumption that the Fed has their back. But in the last eight years, the Fed has controlled the stock and bond markets, and the practice of buying the dip has been successful, and will likely continue to succeed unless members of the Fed’s Board of Governors change. This is only likely to happen if Donald Trump is elected.
The breadth equity market has fallen in recent weeks, which doesn’t usually end well for stocks. Typically, the indexes follow breadth. These divergences have been rare since 1990, and have generally been bad for investors. As Bennett explained, “In the seven instances that occurred before this year, all but two actually portended further losses. December 1990, February 2000, and October 2008 are notable examples. After 2008, equities ended up erasing half their value over the next two years. It should be clear that our markets have no connection with reality. Earnings and revenues have dropped substantially widely across the S&P and Dow constituent stocks, and even the Russell 2000.”
The Dow fell 508 points on Black Monday in 1987, which is a 22.61% drop. The 1929 stock market crash resulted in a 24.55% drop. Some analysts believe we could be facing a similar situation due to the collapsing breadth of the market and our increasingly weak and unstable fundamentals. In today’s market, that could be as much as 400 points.
While the 2016 Presidential Election has passed, when voting in future elections Bennett stresses that you take into account your income, your investments, and your future. Protect them and be ready when things go downhill.